Stocks Higher into Final Hour on Diminishing Credit Market Angst, Less Financial Sector Pessimism, Short-Covering and Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Internet longs, Financial longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is bullish as the advance/decline line is higher, almost every sector is rising and volume is light. Investor anxiety is above average. Today’s overall market action is bullish. The VIX is falling 2.37% and is elevated at 42.86. The ISE Sentiment Index is above average at 180.0 and the total put/call is slightly below average at .83. Finally, the NYSE Arms has been running around average most of the day, hitting 1.39 at its intraday peak, and is currently .82. The Euro Financial Sector Credit Default Swap Index is falling 2.24% today to 109.66 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is falling 3.32% to 195.79 basis points. The TED spread is down 3.88% to 134 basis points. The TED spread is now down 332 basis points in just over ten weeks. The 2-year swap spread is up 5.08% to 69.25 basis points. The Libor-OIS spread is falling 1.97% to 126 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 5 basis points to .06%, which is down 255 basis points in just under six months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .09%, which is up 3 basis points today. The (XLF) trades very well today, which is always a big plus for the broad market. Semiconductor shares are today’s best performers, rising 4.0%. The North American Investment Grade Credit Default Swap Index has now plunged 31.53% since its December 5^th high, which is a huge positive. A rumor regarding Steve Jobs' health appears to have slowed the Nasdaq rally, conveniently for the bears, just as the index was gaining traction. At 16x conservative forward earnings’ estimates, AAPL remains significantly undervalued, in my opinion. We could see further broad market year-end short-covering by large funds with significant short profits tomorrow. Nikkei futures indicate an +175 open in Japan and DAX futures indicate an +24 open in Germany on Friday. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, diminishing credit market angst, less financial sector pessimism, seasonal strength, less forced selling and short-covering.

Today's Headlines

Bloomberg:
- General Motors Corp.’s(GM) bailout from the US Treasury, including billions of dollars committed to the automaker and its financing arm, has analysts predicting its bankrupt former parts unit, Delphi Corp., might get the same.

- The cost of protecting bonds sold by GMAC LLC from default fell as the U.S. Treasury committed $6 billion to the financing arm of the country’s biggest automaker.

- The cost of borrowing in dollars in London for three months dropped to the lowest level since June 2004 as central banks worldwide pumped emergency cash into money markets to combat the credit squeeze. The London interbank offered rate, or Libor, for such loans fell two basis points to 1.44 percent today, according to British Bankers’ Association data. The one-month rate slipped one basis point to 0.45 percent. Asian rates declined and the Libor-OIS spread, a measure of cash scarcity, narrowed. “Central banks are well ahead of the game this time in preventing a squeeze in the crossover into the new year,” said Danny Suwanapruti, a fixed-income strategist at Standard Chartered Plc in Singapore. “Their numerous measures have ensured there’s no liquidity crunch going into year-end.” The Libor-OIS spread, a gauge favored by former Fed Chairman Alan Greenspan, narrowed two basis points to 126 basis points today.

- Michael Holland, chairman of Holland & Co. likes Vanguard Convertible, Junk Bond Funds. (video)

Wall Street Journal:

- Ford Motor Co.(F) plans to offer two Lincoln models next year that can park themselves, the latest move in a strategy aimed at improving the public's image of the auto maker. The automatic parallel-parking system will be shown next month at the North American International Auto Show in Detroit, and will be offered as an option on the Lincoln MKS sedan and MKT crossover-utility vehicle.

- That hedge funds have done poorly this year isn’t exactly a surprise. Still, the end of the year brings data that quantify the damage.

- Embattled Illinois Gov. Rod Blagojevich plans to name Roland W. Burris, the former attorney general of Illinois, to fill the U.S. Senate seat vacated by President-elect Barack Obama, a person familiar with the matter said. Gov. Blagojevich plans to make the announcement Tuesday afternoon. The choice is likely to face intense scrutiny because the governor faces federal corruption charges. The governor appears to be thumbing his nose at critics who have said the process allowing him to choose Mr. Obama's replacement should be circumvented.

Miami Herald:

- Federal and state regulators are investigating a self-styled investment guru who recruited hundreds of Haitian Americans and others to pour their savings into his ventures through a network of South Florida investment clubs. Some investors claim they are victims of a massive Ponzi scheme concocted by George Theodule, a self-proclaimed evangelical minister from Haiti, who promised to double their money in three months.

- Iraq will offer 10 undeveloped or underdeveloped gas and oil fields in its second postwar licensing round due to begin Wednesday, the country's oil minister said. Hussein al-Shahristani did not name all the fields that would be on offer, but said they would include the southern fields of Majnoon and West Qurna Phase 2 which hold reserves of roughly 12 billion barrels of crude each. The two fields currently produce far below their individual output potential of 600,000 barrel per day. Al-Shahristani said Iraq's oil exports in December averaged 1.85 million barrels per day, nearly 90,000 barrels a day more than in November. The contracts from the upcoming licensing round, along with those from the previous round, could add another 4 million to 4.5 million barrels a day within four to six years, he said. Iraq holds the world's third largest proven reserves of crude, with more than 115 billion barrels of oil and an estimated 112 trillion cubic feet of natural gas. It currently produces about 2.4 million barrels of oil per day.

Wired:

- Another iPhone Nano Case on Offer. Case maker Vaja is offering a case for the phantom iPhone Nano. There are no pictures, no prices and no specifications -- the only thing you'll see if you visit the awful Flash site is the listing above which, when clicked, will take you to a pre-order page:

Detroit Free Press:

- Detroit sees 14% drop in homicides this year. Total on pace for lowest since 1967. The city of Detroit is on pace to have its lowest number of homicides in more than 40 years.

NetworkWorld:

- Vlingo adds much-needed voice activation technology to your iPhone. You don't have to train it to recognize your voice. Somehow, it's got you all figured out already. It's free, and you can use it to make calls, update Twitter or Facebook's status, and even run a Google or Yahoo Search.

Careerbuilder.com:

- CareerBuilder.com and USA TODAY published its annual job forecast today and there are some bright spots on the horizon. In today’s issue, USA TODAY focused on the first three months of 2009. While 16% of U.S. employers plan to cut staff, 16% of employers “expect to add workers, while 62% percent anticipate a steady payroll.” That’s promising news for a huge chunk of workers — 78%. (Another 6% weren’t sure what staffing plans for Q1.)

Publishers Weekly:

- Amazon(AMZN) has added a new way of finding books to its site, which the company is calling Author Stores, single pages that feature all books from a particular author, plus, in many cases, an author photo and some related content, such as a biography, message board and streaming video.

Reuters:
- General Motors(GM) Sales Chief says December sales had been up ‘considerably’ from November before latest incentive offer. He also said easier GMAC financing standards could double share of US market GM can target.

- The man putting together Iraq's newest museum doesn't like to be alone in his office, where he keeps bloodied nooses, a medieval-looking torture device and boxes of documents chronicling atrocities under Saddam Hussein.

- Despite the doom and gloom of a prolonged recession, the majority of Americans are optimistic about what is in store in 2009.

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Globe and Mail:

- Output from OPEC members bound by supply targets fell by 400,000 barrels per day (bpd) in December, consultant Petrologistics said on Tuesday, as the group more than complied with a deal to try to boost oil prices.

Gestion:

- Investments in Peruvian oil and natural-gas output will rise almost 16% next year as companies led by Perenco SA develop fields and drill more exploratory wells. Closely held Perenco plans to invest $350 million in the northern jungle Block 67 to produce 40,000 barrels of crude oil a day by 2011.

perthnow:

- Israel would consider suspending its offensive in the Gaza Strip to allow in humanitarian aid, but would need assurances that Hamas would hold fire too, an Israeli cabinet minister said today.

Bear Radar

Style Underperformer:
Large-cap Value (+1.08%)

Sector Underperformers:
Coal (-1.94%), Oil Service (-1.62%) and Gold (-.90%)

Stocks Falling on Unusual Volume:
GNI

Stocks With Unusual Put Option Activity:
1) PXP 2) WFT 3) ROH 4) VVUS 5) CTXS

Bull Radar

Style Outperformer:
Small-cap Value (+1.54%)

Sector Outperformers:
Semis (+2.54%), Defense (+2.27%) and HMOs (+2.27%)

Stocks Rising on Unusual Volume:
CEO, PAA, ULBI, RDEN, EZCH, VPRT, LOGI, STEL, MXI, PBJ, UGP, IHE, IRM, PWO, HNP, DCP, ROH, CJR, CCC, TYN, EXI, DOW, WBK, REP and JKI

Stocks With Unusual Call Option Activity:
1) CSX 2) DHI 3) DOW 4) CHKP 5) IBM

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Tuesday Watch

Late-Night Headlines
Bloomberg:

- The U.S. Treasury said it will purchase a $5 billion stake in GMAC LLC, the financing arm of General Motors Corp. Treasury will also lend an additional $1 billion to GM so the automaker can participate in a rights offering at GMAC to support the lender’s reorganization as a bank holding company, the Treasury announced today. The loan is in addition to $13.4 billion the Treasury agreed earlier this month to lend to GM and Chrysler LLC. Separately, GMAC said it has accepted all bonds tendered in a debt swap designed to reduce its debt load.

- Sony Corp.(SNE), the world’s second- largest consumer electronics maker, rose to the highest in more than two weeks in Tokyo trading after a research report said Sony reduced the cost of making its PlayStation3 video-game console by 35 percent.

- The euro rose the most in almost two weeks against the dollar as the conflict between Israel and Hamas in the Gaza Strip drove up oil prices on concern about possible supply disruptions, reducing the greenback’s appeal.

- The biggest-ever decline in commodities turned Pierre Andurand and Chris Levett into this year’s heroes for investors. Andurand’s $1.1 billion BlueGold Capital Management LLP hedge fund in London almost tripled between its February debut and November by betting on higher oil prices in the first half of 2008 and then reversing the strategy, the 31-year-old manager said. Levett’s $3 billion London-based Clive Capital LLP returned 44 percent in the first 11 months of the year. The first bear market in commodities since 2001, as measured by the UBS Bloomberg CMCI Index, cut investments in raw materials to $144 billion from a peak of $270 billion in the second quarter, Barclays Capital estimates. While the CMCI rose almost fivefold from 2001 to 2008, beating stocks and bonds, commodities measured by the Reuters/Jefferies CRB Index fell 53 percent since June and are heading for the worst year in five decades. “Being short commodities was a highly profitable strategy during the second half of this year,” said Stuart Flerlage, who helps manage $500 million at New York-based NuWave Investment Corp. His fund, with investments including raw materials, rose 51 percent in the year to Dec. 19.

- Israel hinted it was ready to broaden its assault on the Hamas-controlled Gaza Strip with a ground operation after three days of air raids failed to bring an end to cross-border rocket attacks.

Wall Street Journal:

- Top Republican lawmakers are positioning themselves for battle over President-elect Barack Obama's economic recovery plan, signaling Monday that they will cast themselves as guardians against excessive spending rather than outright opponents of the Democrats' stimulus package. Senate Minority Leader Mitch McConnell (R., Ky.) in a statement Monday supported the idea of using federal spending to boost the economy. But he warned that the price tag, which could approach $800 billion over two years, shouldn't become an excuse for funding undeserving projects.

NY Times:

- While newspapers, magazines, radio and local television are all losing advertisers in the recessionary economy, the broadcast networks continue to be an anomaly, with advertisers putting their marketing dollars into national television at levels reminiscent of prosperous economic times.

- A year ago, Gazprom, the Russian natural gas monopoly, aspired to be the largest corporation in the world. Buoyed by high oil prices and political backing from the Kremlin, it had already achieved third place judging by market capitalization, behind Exxon Mobil and General Electric. Today, Gazprom is deep in debt and negotiating a government bailout. Its market cap, the total value of all the company’s shares, has fallen 76 percent since the beginning of the year. Instead of becoming the world’s largest company, it has tumbled to 35th place. And while bailouts are increasingly common, none of Gazprom’s big private sector competitors in the West is looking for one.

CNNMoney.com:
- The 10 Biggest Cleantech Victories of 2008.

IBD:

- Google (GOOG) is catching up in the comparison shopping game. In the last year, traffic to Google Product Search has soared closer to rivals such as Yahoo (YHOO). This comes after Google made several improvements to the service, which helps people compare products online. Google Product Search had 11.8 million unique visitors in November. That's up a whopping 786% from the year-ago period — the biggest one-year increase by far of any online comparison shopping service, says market tracker comScore.

FINalternatives:

- A Run On Hedge Funds: Redemption Strategies and Responses.

USA Today.com:

- The average retail price for gasoline dropped four cents in the last week to $1.61 a gallon, the Energy Information Administration said Monday. The national price for regular unleaded gasoline is down $1.44 from a year ago, the EIA said in its weekly survey of service stations.

Washingtonpost.com:

- The iPhone’s Golden Touch. Tapping into the Apple(AAPL) phone craze, accidental entrepreneurs rake in millions by creating popular applications. Apple won't say how much money the App Store is taking in, nor will it say how many of the 300 million downloads were free apps and how many cost money (most apps are free; the others cost anywhere from a buck to $10). Apple gets a 30 percent cut of revenue generated by apps. But for Apple right now the money isn't the point. The big thing is the race to become the dominant mobile-computing platform, the way IBM-standard PCs running Microsoft operating software -- first DOS and then Windows -- came to dominate personal computing in the 1980s and early 1990s. "It's kind of a gold rush," says Brian Greenstone, who runs a tiny outfit (it's just him and a few freelancers) called Pangea Software in Austin, that has created several hit games for the iPhone, including Cro-Mag Rally and Enigmo. Greenstone, 41, has been writing games for Apple computers for 21 years. But he says he's never seen anything like the iPhone app phenomenon, which this year will deliver $5 million in revenue for him. "It's crazy. It's like lottery money. In the last four and a half months we've made as much money off the retail sales of iPhone apps as we've made with retail sales of all of the apps that we've made in the past 21 years -- combined."

Reuters:

- Lehman Brothers Holdings Inc's emergency bankruptcy filing wiped out as much as $75 billion of potential value for creditors, The Wall Street Journal reported on Monday, citing an analysis by the bank's restructuring advisers. A more planned and orderly filing would have allowed Lehman to sell some assets outside of bankruptcy court protection and would have given it time to unwind derivatives positions, according to the analysis by Alvarez & Marsal.

- U.S. securities regulators adopted rules giving investors a more complete picture of the oil and natural gas reserves that a company holds, the Securities and Exchange Commission said on Monday. Under the new SEC rules that are supported by the energy industry, oil and gas companies will be allowed to disclose their probable and possible reserves to investors. Current rules require disclosure of only proved reserves, but many companies provide all three.

Financial Times:
- Hedge funds are bracing themselves for a raft of more stringent requirements by investors and increasing regulatory scrutiny, following the revelations this month that up to $50bn has been lost through alleged fraud by Bernard Madoff. Paul Kanjorski, a top Democratic Congressman, on Monday said a hearing would be held next Monday to examine the alleged fraud and how it went undetected for so long. The affair is likely to lead to a crackdown on due diligence by fund of funds – which hold more than 40 per cent of hedge fund money – according to hedge fund marketers and advisers. One hedge fund adviser, who looked into investing with Madoff and declined, said: “This is just the start. Third party administrators, greater transparency in investments, more regulatory oversight – we can expect them all.”

China Securities Journal:

- China’s producer prices may decline in the first half of next year, citing Fan Jianping, chief economist at the State Information Center. The government should adopt a looser monetary policy if commercial banks refrain from lending and money supply stays at a low level. There’s not enough evidence to show the economy will recover in the short term, Fan said.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are +.25% to +1.75% on average.
S&P 500 futures +.72%.
NASDAQ 100 futures +.87%.

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Earnings of Note
Company/EPS Estimate
- None of note

Economic Releases

9:45 am EST

- Chicago Purchasing Manager for December is expected to fall to 33.0 versus 33.8 in November.

10:00 am EST

- Consumer Confidence for December is estimated to rise to 45.5 versus 44.9 in November.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly retail sales reports and S&P/CS Home Price Index could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by commodity and technology stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing higher. The Portfolio is 100% net long heading into the day.